According to economists’ forecasts, inflation is about to breach the one per cent barrier – bringing it to its lowest level since 1964 – notwithstanding the fact that the UK economy is poised for a fresh period of growth.
Whether or not the British economy really is experiencing the Goldilocks phenomenon of sustained growth combined with minuscule inflation, price stability over the past few years has profoundly altered consumer behaviour.
And that is, to say the least, a mixed joy for marketers. It means that the premise on which many marketing strategies have been built must now change. No longer is it possible to disguise fattened margins (and ultimately enhanced earnings) behind the mask of inflation indexation.
Low prices have helped to fashion a more street-wise consumer: one who knows not only the price of everything, but also its value. ‘Helped’ because there’s more to this consumer emancipation than greater price transparency. Increased job instability has sharpened the appetite for bargaining. And there is also a developing sense of empowerment, fuelled by technological change. This can be seen most clearly in the workings of the Internet, which is teaching a new generation of shoppers (mostly the more affluent, but that will change in time) to seek instant price comparisons over a wide range of suppliers, in some cases internationally.
How are marketers affected by this new environment? It might be thought that purveyors of bigger ticket items are disproportionately vulnerable. Because the timing of purchases such as cars, washing machines and fitted kitchens is to an extent discretionary, consumers may delay their decision (for example, until the arrival of a sale).
But that is only part of the story. Packaged goods brands are by no means immune to the pressures, as a series of profit warnings from the likes of Gillette, Procter & Gamble, Heinz and Coca-Cola indicate. Fmcg marketers face the same dispiriting obligation to account for every penny spent in their budget and the same consumer reluctance to spend, spend, spend.
Yet surely the new commercial environment offers a valuable opportunity. Those brands that demonstrate superior powers of invention and create better value for money must come out on top. It’s not necessarily a matter of premium product, premium pricing – as BA’s low-cost airline subsidiary, Go, has shown. Nor need it involve massively expensive brand re-engineering. Witness the recent success of Jaffa Cakes in a tube, or NestlÃ©’s chunky Kit-Kat bar.
What winning does require is ever sharper antennae on the part of the marketing team, who need to probe the wily consumer in much greater depth.